Advisory firms and providers should ensure the risk of conflicts through offering or accepting any benefits (monetary and non-monetary) is effectively managed, according to the FCA.
Accepting payments from providers should not impair an adviser’s duty to act in the best interests of their customers.
An FCA spokesman says: “Our inducements rules in COBS 2.3 recognise that some payments or benefits offered and accepted by firms can be in customers’ best interests, and that the conflicts arising can be managed so that there is no risk of the customers’ interests being harmed.”
An FCA spokesman states there are some common features of the types of benefits it considers do not give rise to conflicts. In these cases the benefit:
• was reasonable and proportionate;
• was of a limited scale and nature, taking into account any other benefits offered or accepted;
• did not need to be relied on by the advisory firm in the future in order to continue to service its customers; and
• could reasonably not be expected to result in the channelling of business from the advisory firm to the provider.
As an example of good practice, the FCA offered the following: “We reviewed agreements where the provider contribution to a training event was designed to recover the costs incurred by the advisory firm of organising and arranging for the provider’s active participation at the training event.
“The training was designed to enhance the quality of service provided to customers, and the provider had made it generally available to other advisory firms.
“Some firms set out for us, in some detail, the nature and purpose of the training and the intended audience, together with the associated cost so we could clearly see the training was for a genuine business purpose and that the cost appeared reasonable and proportionate to the provider’s participation.
“In many cases providers had benchmarked the training costs, e.g. on a per adviser basis, to determine the reasonableness of contributions requested from advisory firms.”
While each situation is different the FCA does give some examples of when it is acceptable for a provider to help an advisory business make a profit.
1) Contributions to IT costs
Payments from providers to advisory firms for IT development and associated on-going maintenance that are restricted to only those costs that are necessary to integrate and feed information into a provider’s IT systems are deemed by the FCA to be more likely to be acceptable.
However, the FCA notes payments from providers towards the wider development of an advisory firm’s IT systems or infrastructure, where such development is needed before the advisory firm’s systems can be integrated with a provider’s, are likely to be of such a scale and nature that they cause conflicts of interest that are not in customers’ best interests.
The FCA rules a provider giving an advisory firm training on the features and benefits of its products or services, or subject areas relating to the adviser’s continuing professional development, is unlikely to breach rules if the training is made available to all advisory firms who could recommend the products or services, even if only on a first-come, first-served basis.